Determining Employee or Independent Contractor Status

The Internal Revenue Service has listed twenty (20) factors in Revenue Ruling 87-41 which it considers in determining whether individuals are employees or common-law independent contractors for federal tax purposes. The degree of importance of each factor depends on the occupation, and is case specific. When evaluating each factor in light of your business practices, remember that a "yes" weighs in favor of assessing a worker as an employee.

The first 3 factors are:

1. Instructions: Is the worker required to comply with the employer's instructions? A worker who is required to comply with other persons' instructions about when, where, and how he is to work is ordinarily an employee. This control factor is present if the person for whom the services are performed has the right to require compliance with instructions.

2. Training: Is the worker required to receive training from the employer? Training a worker by requiring an experienced individual to work with him or by requiring the worker to attend meetings, or by using other methods, indicates that the services are to be performed in a particular method or manner.

3. Integration: Does the worker provide services that are integrated into the business? Integration of the worker's services into the business operations generally shows that the worker is subject to direction and control. When the success or continuation of a business depends on the performance of certain services, the workers who perform those services are generally subject to a certain amount of control by the owner of the business.